Technology

Quattrone's Questionable Comeback

"I plan to resume my business career." With those seven words read from a prepared statement on Aug. 22 on the steps of the Manhattan U.S. District Court in New York, Frank Quattrone embarked on a new leg of his four-year journey from star Credit Suisse technology banker to convicted felon to victorious appellant. Provided he stays out of trouble and reports regularly to a court officer for the next year, federal prosecutors will not pursue a third criminal case against him, according to an agreement signed by Quattrone and U.S. attorneys.

Quattrone's supporters were jubilant on learning the deal had been struck. "Thank goodness the witch hunt is over," says Roger McNamee, managing director at Menlo Park (Calif.)-based private equity firm Elevation Partners and a longtime friend of Quattrone (see BusinessWeek.com, 8/8/06, "Elevation Aims High"). "The government has finally closed an investigation and prosecution that never should have happened."

Federal prosecutors charged Quattrone with obstruction of justice in April, 2003, for endorsing an e-mail sent by a subordinate manager at Credit Suisse that bore the subject line: "Time to clean up those files." The message mentioned that regulators were investigating failed initial public offerings of stock and urged employees to follow the firm's document-retention policy.

MUCH BUZZ. At the time the e-mail was written, the National Association of Securities Dealers was investigating stock IPOs at several Wall Street banks. Quattrone's first trial ended in a deadlocked jury and mistrial in October, 2003, but he was convicted in a second trial in February, 2004. This March, a federal appeals court overturned the conviction because of faulty instructions to the jury, and NASD lifted a lifetime ban from the securities industry it had placed on Quattrone in 2004.

The agreement signed on Aug. 22 places no constraints on Quattrone's business activities, freeing him to pursue whatever line of work he chooses. Just what line that will be, Quattrone isn't saying. He did not elaborate in his statement, and his attorneys and PR people declined to comment or make him available for further explanation.

Nevertheless, his vaguely worded intentions have kicked into high gear speculation that had been going on for months in Silicon Valley and Wall Street circles. What kind of re-entry will Quattrone make, and will he find acceptance in all corners of the technology and finance industries?

"UNDERNEATH THAT CLOUD." Ever since Quattrone's conviction on obstruction of justice was overturned last year by a federal appeals court, rumors have circulated that the former banker would start a private equity firm to invest in technology companies. "I've heard recently that he's trying to raise a $6 billion private equity fund," says an investment banker who requested anonymity. With his network of loyal contacts still largely intact, Quattrone could likely raise that amount from individuals and private institutions, the banker added.

Indeed, most Silicon Valley businesspeople expect that Quattrone will get a warm reception. "I don't know how people in the rest of the country might view it, but around here he'll be welcomed with open arms," says Richard Kramlich, general partner at venture capital firm New Enterprise Associates in Menlo Park, Calif.

But public institutions such as state pension funds could have reservations about investing in a fund managed by Quattrone. Such investors are under intense scrutiny as stewards of taxpayer money and often must publicly disclose their holdings. "There's no doubt that there has been some tarnishment to his reputation," says Tom Crotty, a general partner at venture capital firm Battery Ventures in Wellesley, Mass. "It's going to take time for him to work out from underneath that cloud." Crotty added that Quattrone could excel as a member of an existing private equity or venture capital firm.

Joining an existing firm could give Quattrone the sturdy platform he needs to make a strong comeback and win over any doubters. Raising a first-time private equity fund has gotten harder over the past three years as unprecedented amounts of capital have flowed into the industry and big firms such as Kravis Kohlberg & Roberts, Blackstone, and Texas Pacific Group have begun habitually raising mega-funds in the tens of billions of dollars. The world may not need another $6 billion private equity fund, but established private equity firms need partners with expertise in technology—as evidenced by a spate of recent recruitment, including KKR's hiring this year of former Flextronics CEO Michael Marx.

INNOCENCE PROJECT. But Quattrone built his reputation as an investment banker, and his track record as an investor is limited. His money-management experience consists primarily of running Credit Suisse's Internet bubble-era venture capital fund, which, like most funds from that period, has yielded disappointing returns. In addition, as a partner at a private equity firm, Quattrone would have to work as part of a team of equals—unlike his special arrangement at Credit Suisse, which allowed him to run his own technology investment banking division with unusual autonomy.

Sources interviewed by BusinessWeek.com said Quattrone could return to investment banking but only under certain circumstances. He is unlikely to return to Credit Suisse since Quattrone's camp believes the bank did not adequately support him during his legal troubles, according to sources close to Quattrone. A Credit Suisse spokeswoman declined to comment. Quattrone's IPO expertise makes it less likely he will join or start a boutique investment bank as some media outlets have suggested, since such banks specialize in mergers and acquisitions.

Whatever career he chooses, Quattrone will continue to serve on the board of the Innocence Project, a nonprofit organization that works to acquit wrongfully convicted criminals through DNA testing (see BusinessWeek.com, 3/30/06, "Frank Quattrone's Higher Calling"). Quattrone got involved with the organization in 2004 after his conviction and helped raise more than $500,000 for the group from his contacts, demonstrating there are still a lot of friends of Frank in the world.